Basics of Supply Chain Management

1. International Distribution and
Supply Chain Management
DBBA 503C
Dr. Chhavi Jain

5. • Single exchange
transactions
Traditional
• Creating and
maintaining long
term BUYER SELLER
RELATIONSHIP
Modern
Shift in business
These strategic
relationships
generate
managed
supply chains

6. Supply Chain Management
• It encompasses all activities associates with
the FLOW and TRANSPORTATION of goods
from raw material to the end user, and also
the associated information flows.
• Materials and information must flow both UP
and DOWN the supply chain to leverage
strategic positioning and to improve operating
efficiency.

8. Traditionally
--Manufacturing
--Gaining productivity
--Improved technology
--High production levels
Gradually with increase in competition
--Product differentiation strategies
--Marketing research
--more budget for advertising and brand building
For sustaining the business today
--Excellent product design
--Shortest possible lead time

10. Supply Chain can be analysed in
multiple dimensions
• Information about itself, its suppliers and customers
• Detailed information of supplier industry from which they
are sourcing.
Knowledge
Dimension
• Customised solution within ERP packages
• Third party solution providers for SCM , eg. CSX Corp,
Camelot IS-2, etc.
Information
Technology
Aspect
• Gradual shift of human interface with a low transactional level to a much
higher decision making level
• Rational, logical decisions would be standardised as algorithms and the
lateral , creative thinking would be areas for future human forays
• Redesign and reallocation of jobs and responsibilities of individuals in
the field
Human
Interface

12. Supply Chain
• It refers to the way that materials flow through
different organisations, starting with raw materials and
ending with finished products delivered to the ultimate
consumer.
• It is a sequence of:
– Suppliers
– Transporters
– Warehouses
– Manufacturers
– Wholesalers/ Distributors
– Retail outlets
– Final customers

13. Supplier
A
Storage  Manufacturing Storage
Distributor  Retailer Customer
Supplier
C
Supplier
B
Supply Chain for a Manufacturing Organisation

14. Supplier A
CustomerServiceStorage
Supplier B
Supply Chain for a Service Organisation

16. • A company can identify its supply chain by first selecting a
particular product group or product family. Then it should
trace the flow of materials and information from the final
customer (end users) backward through the distribution
system, to the manufacturer and then to the suppliers and
the source of raw materials. This entire chain of activities
and processes is known as the Supply Chain for that
particular group.
• A large company will have several supply chains. In a
multidivisional company with many product groups, there
could be many different supply chains.
• Example- Companies like P&G or GE may use 50-100
different supply chains to bring their products to the
market.

17. SCM
• It is the integration of
the various activities
encompassed by the
supply chain through
improved supply chain
relationships to achieve
a sustainable
competitive advantage.

18. Integrated SCM
• Integrated SCM is a proven business strategy that
has gained wide acceptance due to increasing
customer demands for quality, delivery and
speed.
• New and radical ways of communicating, coupled
with cost reduction and more interdependent
supplier, provider and customer relationships,
have contributed to the emergence of an
integrated supply chain approach.

20. Objectives
• Provide an uninterrupted flow of materials, supplies and
services required to operate the organisation
• Keeps inventory investment at a minimum
• Maintain and improve quality
• Find or develop competent suppliers
• Purchase required items and services at lowest total cost
• Improve the organisation’s competitive position
• Achieve harmonious, productive working relationships with
other functional areas within an organisation
• Accomplish the purchasing and marketing objectives at the
lowest possible level of administrative costs.

21. Functions of SCM
• Aligning Flows
• Integration of functions
• Coordinating processes
• Procurement
• Planning and Forecasting
• Logistics
• Resource Management
• Information workflow
• Distribution

22. Components of SCM
• Plan- develop a set of metrics to monitor the supply chain so that it is efficient,
costs less and delivers high quality ad value to customers in the most effective
manner.
• Source- develop a set of pricing, delivery and payment processes with suppliers
and metrics for monitoring and improving the relationships. It also involves putting
together processes for managing the inventory of goods and services from
suppliers, including receiving shipments, verifying them, transferring them to
manufacturing facilities and authorizing supplier payments.
• Make- making schedule for activities necessary for production, testing, packaging
and preparation for delivery. It requires measurement of quality levels, production
output and worker and asset productivity.
• Deliver/ LOGISTICS- involves coordination of the receipt of orders from customers,
developing a network of warehouses, picking carriers to get products to
customers and setting up an invoicing system to receive payments.
• Return/ reverse flow- reverse flow of goods from customers back to the
manufacturer. Receiving defective and excess products back from customers and
supporting customers who have problems with delivered products.

23. Issues in SCM
• Supply chain networks
• Complexity
• Inventory deployment
• Information
• Cost/ value
• Organisational relationships
• Performance measurement
• Technology
• Transportation management
• Supply chain security

24. Decision Phases in a supply chain
SC Strategy/ Design
• Location and
capabilities of
production and
warehousing
facilities
• Products to be
manufactured or
stored at various
locations
• Modes of
transportation to be
made available along
different shipping
legs
• Type of information
system to be utilised
SC Planning
• Which market to be
served from which
locations
• The planned build up
of inventories
• Subcontracting of
manufacturing
• Replenishment and
inventory policies to
be followed
• Policies regarding
back up locations in
case of a stock out
• Timing and size of
marketing
promotions
SC Operations
• Allocating individual
orders to inventory
or production
• Setting dates for
fulfilling orders
• Generating pick lists
at a warehouse
• Allocating an order
to a particular
shipping mode or
shipment
• Getting delivery
schedules of trucks
• Placing
replenishment
orders

25. 1. SUPPLY CHAIN PROCESS CYCLE
2. PUSH PULL VIEW
Two different ways to view the process performed in
a supply chain are:

26. SUPPLY CHAIN PROCESS CYCLE

27. CUSTOMER
CUSTOMER
ORDER CYCLE
RETAILER
REPLENISHMENT
CYCLE
DISTRIBUTOR
MANUFACTURING
CYCLE
MANUFACTURER
PROCUREMENT
CYCLE
SUPPLIER

28. CUSTOMER ORDER CYCLE
CUSTOMER
ARRIVAL
CUSTOMER
ORDER
ENTRY
CUSTOMER
ORDER
FULFILLMENT
CUSTOMER
ORDER
RECEIVING

29. REPLENISHMENT CYCLE
RETAIL
ORDER
TRIGGER
RETAILER
ORDER
ENTRY
RETAIL
ORDER
FULFILLMENT
RETAILER
ORDER
RECEIVING

30. MANUFACTURING CYCLE
ORDER
ARRIVAL
FROM
RETAILER/
DISTRIBUTOR
/ CUSTOMER
PRODUCTION
SCHEDULING
MANUFACTU
RING AND
SHIPPING
ORDER
Received by
RETAILER/
DISTRIBUTOR/
CUSTOMER

31. Procurement cycle
Order components
from suppliers
Replenish
inventories
Production
schedule

32. PUSH PULL VIEW

33. Pull Process
• Here, execution is initiated in
response to a customer order.
• At the time of execution,
demand is known with
certainty.
• Reactive processes
Push Process
• Here, execution is in
anticipation of customer order.
• At the time of execution,
demand is not known but
forecasted.
• Speculated processes

34. Three important activities involved in SCM are:
• Purchasing
• Logistics
• Warehousing & Expediting

35. Purchasing
• It is the link between the organisation and its suppliers. It
exchanges information with suppliers and functional areas.
• Purchasing is responsible for obtaining the materials, parts and
supplies needed to produce a product or provide a service.
• In manufacturing, more than 60 percent of the cost of finished
goods comes from purchased parts and materials. In wholesaling
and retailing, the inventories of purchased materials sometimes
exceed 90 percent.
• The importance of purchasing is not only just the COST of goods
purchased, but also the QUALITY of goods and services and the
TIMING of deliveries of goods and services, both of which can
have significant impact on operations.

36. Purchasing interfaces
Purchasing
Legal
Accounting
Data
Processing
Design
Receiving
Operation
Supplier

37. Purchasing interfaces
• Operating units constitute the main source of
requests for purchased materials. Close
cooperation between these units and the
purchasing department is important to meet
QUALITY, QUANTITY and DELIVERY goals.
• LEGAL departments’ assistance is required in
contract negotiations, in drawing up bid
specifications for non-routine purchases and to
help interpret legislation on pricing, product
liability and contracts with suppliers.

38. Purchasing interfaces
• Accounting is responsible for handling payments
to suppliers. DATA PROCESSING by accounts
department includes keeping inventory records,
checking invoices and monitoring vendor
performance.
• Design and engineering prepares material
specifications which must be communicated to
purchasing. They also determine whether
changes in specifications, design or materials can
reduce the cost of purchased items.

39. Purchasing interfaces
• Receiving checks incoming shipments of
purchased items to determine whether
quality, quantity and timing objectives have
been met and moves the goods to temporary
storage. Purchasing must be notified when
shipments are DELAYED, accounting must be
notified when shipments are RECEIVED so that
payments can be made.

40. Purchasing interfaces
• SUPPLIERS/ VENDORS work closely with
purchasing to learn what materials will be
purchased and what kinds of specifications
will be required in terms of quality, quantity
and deliveries. Purchasing must rate vendors
on cost, reliability, etc. Good supplier relations
can pay dividends on rush orders and changes
and vendors provide a good source of
information on product and material
improvements.

41. Purchasing Cycle
• It begins with a request from within the
organisation to purchase material, equipment,
supplies or other items from outside the
organisation and the cycle ends when the
purchasing is notified that a shipment has been
received in satisfactory condition.
Order receiving
Order
monitoring
Order placed to
vendor
Supplier
selected
Requisition
received

42. Value Analysis
• It refers to an examination of the function of
the purchased parts and materials in an effort
to reduce the cost and/or improve the
performance of those items.
Select purchased
part/ material/
service that has
high annual rupee
volume
Identify function
of the item
Check its value/
utility
Analyse its value/
utility and
recommend

43. Outsourcing
• It refers to buying goods or services from
outside sources instead of making the goods
or providing the services within the firm.
Improve
company focus
Access to world
class capabilities
Accelerate re-
engineering
benefits
Share risks
Free resources
for other
purposes
Make capital
funds available
Cash infusion
Reduce and
control
operating costs
Resource not
available
internally
Function difficult
to manage or
OUT of Control
Why Outsourcing??

44. JIT Purchasing
• JIT manufacturing techniques require Just-In-
Time Purchasing. It includes dealing with
fewer suppliers and forming long-term
relationships with suppliers who emphasise
co-operative spirit than low price.
• On-time delivery is usually the primary need
of JIT manufacturers, followed by small lot
sizes.

45. Suppliers
• Good suppliers are a vital link in the supply chain. Late deliveries of parts
or materials or missing or defective items can disrupt production
schedules, increase inventory costs and cause late deliveries of end
products.
• Supplier Evaluation is the process of evaluating the sources of supply in
terms of price, quality, reputation and service.
• Factors to be considered while choosing a supplier:
– Lead times
– On-time delivery
– Quality and quality assurance
– Flexibility
– Location of supplier
– Price
– Product or service changes
– Inventory policy
– Priority setting

46. Supplier Audits
• Periodic audit of suppliers are helpful in getting current information
on supplier’s production capabilities, quality and delivery problems,
etc.
• If the audit reveals problem areas, a buyer can address those before
they result in serious problems.
• Some of the factors covered by a supplier audit are :
– Management style
– Quality assurance
– Materials management
– Design process used
– Process improvement policies and procedures for corrective action
• Supplier’s audits are also an important first step in the supplier
certification program.

47. Supplier Certification
• It is a detailed examination of the policies and
capabilities of a supplier. The certification process
verifies that a supplier meets or exceeds the
requirements of a buyer. This is particularly important
when buyers are seeking to establish long term
relationship with suppliers.
• Certified suppliers are sometimes referred to as
WORLDCLASS suppliers. Buyers can eliminate much or
all of the inspection and testing of goods delivered by
certified suppliers.
• For certification suppliers, some companies rely on
standard industry certifications such as ISO 9000.

48. Supplier partnerships
• Companies have become increasingly aware of the
importance of building good relationships with their
suppliers.
• Japanese firms have been very successful in building good
relationships with their suppliers and getting numerous
benefits from good supplier relations, including supplier
flexibility, in terms of accepting changes in delivery
schedules, quality and quantities.
• Moreover, suppliers can often help identify problems and
offer suggestions for solving them.
• Many Japanese firms rely on one or a few suppliers to
handle their needs while many US firms deal with
numerous suppliers.

49. Supplier partnerships
• Keeping good relations with suppliers help in
maintaining a competitive edge. Many
companies are adopting a view of suppliers as
partners. This stresses a stable relationship
with relatively few reliable suppliers who can
provide high quality supplies, maintain precise
delivery schedules and remain flexible relative
to changes in productive specifications and
delivery schedules.

50. Supplier partnerships
• Suppliers can help in competitiveness through:
– Reduce the cost of making the purchase
– Reduce transportation costs
– Reduce production costs
– Improve product quality
– Improve product design
– Reduce the time, it takes to get the product to the
market
– Improve customer satisfaction
– Reduce inventory costs
– Introduce new products or processes

51. Supplier partnerships
Some of the obstacles to supplier partnerships
are:
– Supplier may be hesitant to enter in such
partnerships because many of the benefits go to
the buyer.
– Suppliers may have to increase their investment in
equipment which might put a strain on cash flow
– Cultures of the buyer and supplier might be quite
different and not lend themselves to such an
agreement.

52. Logistics
• It refers to the movement of materials within
a production facility, the shipment of incoming
materials from suppliers and the shipment of
outgoing products to customers.
• Materials include all the physical items used in
the production process such as raw materials,
parts, components, consumable supplies,
fuel, equipments, tools, office supplies, etc.

54. Warehousing and Expediting
• It is the management of materials while they are in
storage. It includes storing, dispersing, ordering,
accounting for all materials and finished goods from
the beginning to the end of the production process.
• Warehousing operations deals with materials that
directly support operations. The first problems that
must be addressed are when to place an order.
• Orders are placed and shipments eventually appear in
the receiving department, usually by either truck or rail
road cars (railway wagons).

55. Importance of SCM
• Boosts customer service
• Reduces operating costs
• Improves financial position
• Improves coordination and collaboration with
suppliers, distributors, service providers and
customers.
• Secures access to essential raw materials
• Ensures better quality of materials
• Improves efficiency